Improving your funding level and pensions stability

Transcription

1 For Professional Clients only Improving your funding level and pensions stability Delegated Consulting Services The 2014 Collection (Click here to begin)

2 Contents Introduction Fiduciary Management Survey 2014 In the Press: Mythbusting fiduciary fees September 2014 In an article first published in Pensions Age, Sion Cole dispels some of the myths surrounding fiduciary management fees. 99% are satisfied with fiduciary September 2014 A solution that offers this statistic must be worth finding out more about. In an article first published in Engaged Investor, Sion Cole examines Aon Hewitt s 2014 survey results. True or false? October 2014 In this article, first published in Pensions World, Sion Cole tackles some of the myths about fiduciary management. Fiduciary myths busted October 2014 Sion Cole dispels some of the myths surrounding this growing investment and governance solution, in this article first published in Professional Pensions. Press releases Aon Hewitt Fiduciary Management Survey 2014 finds the majority of schemes opting for tailored measurement of provider performance September 2014 Aon Hewitt s Fiduciary Management Survey 2014 reveals that two-thirds of schemes measure the success of fiduciary providers against unique objectives while only 25% would prefer to use an industry benchmark. Aon Hewitt says it is time to kill the myths of fiduciary management September 2014 Take-up of fiduciary management by pension schemes is continuing to expand but does so despite some of the myths that still surround it. White papers Understanding the fees charged within fiduciary management A comprehensive guide to selecting a fiduciary manager The evolution of pension scheme investing: looking beyond DGFs to fiduciary management Fiduciary management: success story or failing fad? Performance league tables: Great for football, a step backwards for fiduciary management Fiduciary myth busters

3 Introduction

4 1 Introduction Foreword: The 2014 Collection In 2014, as in 2013, fiduciary management was one of the most hotly discussed topics within the pensions industry. Fees, conflicts, performance league tables and how to choose a provider were some of the big issues that I came across fairly frequently. Given the strong growth in take-up of this solution, this level of interest does not come as a surprise. As part of our ongoing commitment to both our clients and the fiduciary management industry, we regularly produce educational materials on such topics, with the aim of providing an unbiased and informative view. In particular, our white papers and mythbusting videos look to cut through and dispel some of the myths that have emerged around fiduciary management, as well as acting as a useful guide for any scheme representative considering a fiduciary approach. We produced a plethora of materials during 2014 and therefore thought you would find this document useful as a reference point to access the full collection. As always, I, or any of the Delegated Consulting Services team at Aon Hewitt, would welcome the chance to discuss any of the topics raised here or any other fiduciary management matter. Sion Cole Partner & Head of Client Solutions Delegated Consulting Services t: m: sion.cole.2@aonhewitt.com Follow me on

5 Fiduciary Management Survey 2014

6 3 Fiduciary Management Survey 2014 The 2014 survey is our largest-ever study of the fiduciary management market. It is also the largest UK survey on fiduciary management in the pensions industry. As a result, it gives key first-hand insights into: The current market environment, including the pace of growth and its drivers The experiences of those who have gone down a fiduciary route To download a copy of the full survey, please click here: For more information on the survey or our fiduciary management solutions, please speak to your usual Aon Hewitt consultant or contact Kelly Twiddy on or via on: kelly.twiddy@aonhewitt.com. Key advantages both perceived and experienced of using fiduciary management for pension scheme investment. As well as the survey findings, the report contains commentary from our fiduciary experts, providing valuable insight into, and analysis of, the results.

7 In the Press

8 5 Myth-busting fiduciary fees 99% are satisfied with fiduciary investment fiduciary management Fiduciary Management Expert View t is not surprising that fees and costs are high on many pension schemes Iagendas they are something that we are often asked about. However, there are also a lot of misconceptions around fiduciary fees that can put trustees off considering this approach. In this article I look to offer some clarity around four of the more common fiduciary fee myths. 1. Fiduciary fees are more expensive Fiduciary fees are not necessarily more expensive. This is dependent on what your current portfolio looks like and where you want to be (what the new solution looks like). For example, a scheme which has an existing portfolio comprised of a high number of active equity and hedge fund managers, with complex liability hedging arrangements, may see lower fees under a fiduciary approach as assets are consolidated and they take advantage of economies of scale. 2. Fees are not transparent The level of transparency around fiduciary fees really depends on the fee approach taken. There are typically four component parts to the fees charged within fiduciary management; the provider fee, underlying manager fees, investment consultancy fees, and other fees such as admin or custody. A bundled fee approach is where all of these components parts are combined into one overall fee. While this approach gives certainty regarding the costs it does mean some lack of clarity around where costs are incurred. An unbundled fee approach actually gives full transparency of costs as each individual service is shown and it gives providers the ability to show any fee savings that have been made (for Myth-busting fiduciary fees Sion Cole dispels some of the myths surrounding fiduciary fees example, through asset management fee negotiations). 3. Providers earn fees from the managers they use Fiduciary management is very much based on trust between the provider and the pension scheme and therefore earning money out of using certain managers would go against this principle. Whether providers use in-house funds or externally managed funds (or a combination of both), it is worth clarifying upfront if the fiduciary provider earns any incentives from this. In addition, if they can negotiate any fee savings due to their scale, are these passed on 100 per cent to the clients (ensuring transparency, as mentioned above). 4. Fees are not aligned with clients interests Fiduciary providers can, or should be able to, charge their fees in the form preferred by the client. By this we mean charging either a base fee or a base fee plus performance fee (where the performance fee is driven by some form of metric such as funding level improvements). The structure of a performance fee is important as it can be used to help directly align the interests of the client and provider. For example, performance fees can vest over, say, three years to encourage steady performance, benefitting both the client and provider. Where a client has a preference for a fee that clearly aligns their interests with the provider, it is worth requesting a fee that includes a performance element, thereby solving this concern. There are a number of myths around fiduciary management fees. This is perhaps partially due to them being different in their construction to a more traditional advisory approach and the level to which they are bespoke means fees are hard to compare directly. However, what is actually most important is neither the headline fee, nor if one solution is more expensive than another, it is for trustees to ask what added value they are getting. Trustees should evaluate each solution based on the benefits and expected outcomes. Really delve beneath the headline fee and ask the questions necessary to ensure they are comfortable with the answers. Ultimately, if one solution is going to be more aligned with your needs, offering greater stability or helping you reach your end-goals quicker for the same level of risk, isn t that worth it? In association with Written by Sion Cole, partner & head of client solutions, Delegated Consulting Services, Aon Hewitt To understand more on some of these issues please visit our website: aonhewitt.co.uk/ delegatedconsulting or contact us on September % ARE SATISFIED WITH FIDUCIARY A solution that offers this statistic must be worth finding out more about? Sion Cole examines Aon Hewitt s 2014 survey results Sion Cole, partner and head of client solutions, Delegated Consulting Services [Aon Hewitt s fiduciary business] KEY SURVEY HIGHLIGHTS * 37% currently invested in fiduciary management * Increase in the use of flight plans * Expertise seen as key benefit * 68% measure performance (success) vs their unique objectives * Preference for unbundled fees * 99% satisfied or better with their overall fiduciary solution To learn more about the process of appointing a fiduciary manager, attend Aon Hewitt and Engaged Investor s Fiduciary Management in Practice seminar on 9th October. For more information and to register, visit engagedinvestor.co.uk/events W hile fiduciary management has become the term most widely used and accepted within the industry, it does not do justice to what is actually a very bespoke and comprehensive solution. With much published around fiduciary management, it can sometimes be difficult to see past the name and cut through to what is important what benefits could it offer a pension scheme, and is it delivering on these promises? DRIVERS OF GROWTH The combination of challenges and pressures facing pension scheme trustees has led to the evolution of many different investment and governance solutions. Fiduciary management is one of the solutions available, and it has been fuelled by three key aspects: pressure on trustee time, increasing investment complexity and the incorporation of flight plans. 73% of trustees now spend five hours or less on investment matters each quarter (up from 67% in 2013). The range of instruments and tools available, and increasing investment complexity, have put even more pressure on trustee time and expertise. For example, liability-driven investment, hedge funds and private equity all require more understanding and training, and more managers to select, monitor and review. The incorporation of flight plans also adds pressure around operational complexities and the need for daily monitoring and implementation. A RANGE OF BENEFITS FOR SCHEMES Respondents to our 2014 survey identified the top three advantages of fiduciary management as being investment expertise, daily attention to risk and investments, and bespoke or tailored solutions. In addition, nimbleness, freeing up trustees time and diversification are also important benefits of this approach. Schemes with fiduciary management are twice as likely to hold seven or more asset types, and hence have similar levels of 7 diversification to the UK s largest pension schemes. Being nimble and able to capture opportunities as they arise and lock in gains is an important benefit to help schemes smooth funding-level volatility and reach end goals. Many of the benefits are closely related to the industry changes and drivers of growth discussed briefly previously. For example, investment expertise is required to deal with increasing complexity and daily attention can be essential for successful flight plan implementation. Fiduciary management frees up trustees time to focus on the strategic aspects that drive the direction of the long-term strategy. The fiduciary experts undertake the day-today management of the portfolio. In this way, the scheme can benefit from the provider s always on investment expertise, daily attention and ability to react quickly. DELIVERING ADDED VALUE TO SCHEMES Anecdotal evidence from our survey shows a resounding vote of confidence in fiduciary management solutions. Of those schemes with fiduciary management in place, 99% said their overall experience is excellent, good or satisfactory; 97% say the same about the impact on their funding level (performance); and 98% say the same about client service. However, in order to achieve success, it is important to select the right partner and the right solution. Of respondents in our survey, 59% said they would prefer to appoint the fiduciary arm of their existing actuary or investment consultant, most likely due to the strong relationship built up over a number of years. Our survey also highlighted that all respondents would use a combination of selection processes to choose their provider (including beauty parades and due diligence). SUMMARY Fiduciary management is now an established investment and governance solution with a track record of adding value for many schemes. As a bespoke solution, it makes finding the right provider and offering even more important to its success, ensuring it suits your scheme s specific needs and achieves your end goal. Ultimately, it should help you achieve better outcomes for your members and greater pensions stability. To watch our fiduciary myth-busting videos, read our educational papers or download a copy of our Fiduciary Management Survey 2014, please visit our website: aonhewitt.co.uk/delegated ENGAGED INVESTOR SEPTEMBER / OCTOBER

9 6 True or false? Fiduciary myths busted beginners page knowledge bank Partner Insight True or false? Sion Cole, Aon Hewitt, tackles some of the myths about fiduciary management iduciary management is by no means a new term or offering in the FUK pensions market, having been established for over five years. However, perhaps due to its perceived complexity, there are a number of misconceptions that still exist surrounding this investment and governance solution. In this article, we hope to clarify four of the more common myths. ➊ A loss of control When people talk about fiduciary management leading to a loss of control, what do they mean? We believe control is the ability to ensure stable funding levels and the greatest chance of meeting your end goal in all conditions. The PPF Index shows that, in the past six years, the aggregate funding level of UK pension schemes has swung by over 500bn and therefore could be seen as being out of control. Fiduciary management actually enables greater control, as the trustees set the guidelines and objectives and delegate the day to day management of their portfolio to experts who are responsible for delivering on these. They gain the benefits of always on investment expertise. The results have been positive for many schemes. ➋ Fiduciary management requires MORE trustee time Fiduciary management does require trustees to spend time at the outset setting the strategy and parameters and then choosing the right provider/solution. However, moving forward it actually enables them to focus their limited time where they can truly add value (on strategic matters), delegating the tasks where others have greater expertise. For example, the fiduciary provider does the day to day In a nutshell fiduciary management enables trustees to have greater control of their scheme fiduciary solutions are very much bespoke to each scheme choosing the right provider and solution is critical to delivering pensions stability fiduciary management is adding value: 99% of schemes are satisfied or greater with overall experience. management of the portfolio, which can include, but is not limited to, undertaking the reviewing, monitoring and selection of multiple managers, along with medium Fiduciary management is an investment and governance solution that, when designed specifically to your scheme s needs, can really add value. Sion Cole term asset allocation decisions and risk budgeting between asset classes. Contributed by the ➌ All fiduciary solutions are much alike Fiduciary management is very much a bespoke solution, designed to help each pension scheme meet its unique long term goals and objectives. Not only do the elements and services vary significantly between providers, but they can also vary within the solutions each provider can offer depending on the client s needs. Owing to the scheme specific nature, it is even more important to take the time to understand the solutions and providers available. You need to undertake the right selection process, with open/honest conversations, and pose the right questions to truly understand the offerings available. This will maximise the chances of success. ➍ Fiduciary solutions are failing to add value Our experience suggests there is little evidence to deem fiduciary management Pensions Management Institute as failing, while there is strong evidence that fiduciary solutions are delivering significant added value. One might argue some of the early solutions were not fit for purpose or, more likely, represented a miscommunication between provider and trustees. However, this is not a failure of fiduciary management per se. In Aon Hewitt s Fiduciary Management 2014 Survey, of those schemes with fiduciary management: 99% said their overall experience is excellent, good or satisfactory; 97% said the same about the impact on their funding level (ie, performance); and 98% said the same about client service. In other words, a resounding vote of confidence. Adding value There are a number of myths around fiduciary management and it is therefore essential to delve beneath these to understand each area in detail. What is most important though is to not think about fiduciary management as a term or product. Fiduciary management is an investment and governance solution that, when designed specifically to your scheme s needs, can really add value and help you reach your end goal. Finding the right provider and solution that suits your scheme is critical to the success of this solution. To watch our fiduciary myth busting videos or to download a copy of our Fiduciary Management Survey, please visit our website: aonhewitt.co.uk/ delegatedconsulting or contact us on Sion Cole is a partner and head of client solutions at Aon Hewitt; sion.cole.2@aonhewitt.com Fiduciary myths busted Sion Cole, partner and head of client solutions, dispels some of the myths surrounding this growing investment and governance solution Fiduciary management larger schemes are adopting partial fiduciary solutions whereas full fiduciary man- to address and policies in place con tinues to grow in the UK. Aon Hewitt s Fiduciary agement is most common among small manage them. Management Survey 2014 and mid-sized schemes. Around 90% of Given that trustees showed take-up has doubled in the past three years. under 250m in size. Our survey showed with many partners, it is good full fiduciary mandates in the UK are will already be engaging Despite this, there are still a number of the largest increase in take-up of fiduciary management since 2011 among those potential conflicts, how they are man- practice to ensure they understand any myths that exist regarding this solution. In this article we look at four fiduciary schemes of 101m to 1bn. aged and assess if the overall solution/ myths, drawing upon our experience and Larger schemes can benefit from the service has a net benefit. At Aon Hewitt the results of our survey to dispel these. greatest tailoring, with solutions bespoked our fiduciary and traditional investment to the nth degree. Small schemes may consulting services are provided through 1. Performance league have slightly less freedom when it comes different businesses, with conflicts policies in place, and we typically follow an tables would be helpful to tailoring; however, it is still possible There have been calls in the industry to bespoke key elements, or indeed take unbundled fee approach so trustees can for fiduciary performance league tables. advantage of the more cost-conscious be clear that our interests are aligned. However, league tables are only suitable for solutions now available in the market. For fiduciary providers, conflicts differ products, where the participants have similar investment objectives and they are com- just for big schemes, but for schemes of the circumstances around the scheme Clearly, fiduciary management is not depending on the nature of the solution, pared against similar benchmarks. Fiduciary all sizes, however the solution does differ. itself and the unique situation. Fiduciary management is a bespoke solution, not a management is likely to change the nature product, and therefore a league table would 3. Fiduciary adds of the conflicts faced, removing some and be inappropriate and misleading. conflicts of interest introducing others, rather than increasing per se (which is sometimes the pre- Each scheme has unique liabilities and Conflicts of interest within professional investment objectives, and as a result, has services are not a new concept. In fact, sumption). It is worth noting that adding a third party may actually add, not unique operational parameters. The solution put in place will be tailored to their (such as lawyers, independent advisers, remove, conflicts. everyone providing a service to trustees needs and thus the expected returns would consultants, accountants, fund managers and fiduciary managers) inevitably 4. RFPs are a good way also be unique. The best way to measure performance is therefore versus the faces conflicts in one guise or another. to select a provider scheme s unique investment objective. 68% Conflicts of interest are therefore not specific to fiduciary management. Trustees select a fiduciary provider, we believe that While there is no right or wrong way to of respondents to our survey agreed, saying they would prefer to compare the success of need to be able to trust their chosen partners and therefore should be comfortable to select a provider given the bespoke an RFP alone is not an appropriate way their solution versus their unique investment objective, as opposed to versus an industry that providers have a clear understanding of the conflicts they face and the ment. Our experience is that UK trustees and tailored nature of fiduciary manage- benchmark or other fiduciary solution(s). This is a strong statement against league tables for fiduciary management. 2. Fiduciary management is only for big schemes Fiduciary management was initially developed for large pension schemes. Nowadays Fiduciary management is a bespoke solution, not a product, and therefore a league table would be inappropriate and misleading are doing an excellent job of running selection exercises. The very best processes we ve been involved in have shared a number of similarities, which can be summarised into six key steps: establish what role you want your fiduciary manager to play, consider the broad shape of the strategy, create a long list, decide on a short list, work closely with a couple of providers, and perform a full site visit. Our survey showed all respondents used a combination of selection processes when choosing a fiduciary provider. Beauty parades (72%) and due diligence (66%) topped the list of preferred methods. Fifth on the list was a site visit (44%), which we would actively encourage all schemes to do, as fiduciary management is a long-term relationship that needs trust. Knowledge is power There are a number of myths around fiduciary management and it is important to understand them. Fiduciary management is an investment and governance solution that, when designed specifically to your scheme s needs, can really add value and help you reach your end-goal. Fiduciary management is a long-term partnership and therefore finding the right provider and solution is critical to ensuring you maximise the chances of success. To watch our fiduciary myth busting videos or to download a copy of our Fiduciary Management Survey 2014, please visit our website: aonhewitt.co.uk/ delegatedconsulting or contact us on Pensions World October October 2014 Professional Pensions 25

10 7 How to speak fiduciary governance governance Fiduciary management EngagEd InvEstor january / february How to speak fiduciary Why, when and how fiduciary management is appropriate for trustees How to bypass the jargon and get to the heart of the issues that matter How to build a fiduciary management relationship that will work for your pension scheme by: Louise Farrand Vincent Franklin walks into a (hypothetical) boulangerie. With his basic French, he could probably order a baguette with relative ease, but he d certainly struggle with a more complicated order. Finance is another foreign language. Regular people grasp some of the basics but may struggle with more complex jargon. Financial language can exclude those who don t speak it, said Franklin, who is co-founder of Quietroom, a communications consultancy. Franklin was setting the scene for Aon Hewitt and Engaged Investor s annual Fiduciary Management in Practice conference, where trustees met experts to discuss how, when and why fiduciary management is appropriate for pension schemes. Yet even the term fiduciary management is difficult to explain to laypeople. Franklin outlined three ways financial language can alienate people. The first is by using distancing language. All financial services companies use language that puts distance between people and the service, said Franklin. He illustrated with an example: Assistance with the completion of this form is available from the helpdesk, which can be contacted on the number below. In financial services land we remove the people from our writing, Franklin observed. The second way is by using specific financial jargon. APR, return on investment and defined benefit are all jargon that have become part of the finance industry s regular parlance without entering the vocabulary of the general public. The third way is by using what Franklin terms variable financial jargon: words that appear to mean the same thing wherever they re used but actually mean something completely different. The term flight planning is an example of variable financial jargon. The financial services industry defines flight planning as agreeing a funding target, then an approach to managing assets and liabilities that will hit that target. But is the plan flexible, fixed or automated, and is it detailed or general? Will it be renewed often, rarely, or only if goals change? Franklin urged pension schemes to drag fiduciary managers and other financial experts down the so-called ladder of abstraction. He suggested trustees ask what a flight plan could do for their scheme. What flight plans has the provider designed for schemes with similar problems to theirs? Another example of abstract terminology is de-risking triggers. Since when is triggers a positive word? asked Franklin. It s right up there with rope! An investment buy Selecting a fiduciary manager is like buying a house: you can t just look at the photos, and the prices vary, you need to do a lot of research to decide what s right in the long term, explained Sion Cole, Aon Hewitt s head of client solutions. Fiduciary management is a solution, not a product and varies, making it difficult to compare providers, observed Cole. There are different types of fiduciary management underneath the umbrella term: full fiduciary management, partial fiduciary management, or a specific de-risking mandate. To help trustees through the selection process, an industry of third party evaluators has sprung up in recent years. Aon Hewitt s 2014 Fiduciary Management Survey, the fifth of its kind, revealed that 41% of schemes took advice from a third party evaluator before appointing a fiduciary manager. Cole predicted such evaluators will grow in future, as fiduciary management becomes more and more widespread. Cole advised trustees to meet the team who would manage their scheme on a daily basis, rather than just the fiduciary manager s sales team. The event was designed as a virtual walk-through of a fiduciary management selection process. Therefore, some members of Aon Hewitt s in-house team were on hand to explain their roles to the audience of trustees. the day to day Neil Smith is a fiduciary specialist at Aon Hewitt. He would work to understand all of the nuances that underlie a trustee board s objectives, and help the scheme to design a bespoke solution. He would also attend trustee meetings and provide regular updates. He would also work closely with the scheme s actuary and investment consultant to keep the strategy on track. George Carvounes is a senior equity research analyst at Aon Hewitt. He is one of an in-house team of more than 80 investment management professionals who are dedicated to research and finding the best ideas. Trustees also heard a first-hand account of fiduciary management. Mike Clews is a trustee of the PPG Industries (UK) Ltd Pension Plan, which uses Aon Hewitt as a fiduciary manager. He advised trustees: Be very clear about the objective. He also made the point that while cost is an important factor when appointing a fiduciary manager, the net return after costs is the main number to consider. So yes, by all means try and squeeze the fees, it s a sensible thing to do, but the thing to think about is the net return after fees, he concluded. The Highlights Aon Hewitt s 2014 FiduciAry MAnAgeMent survey 73% of trustees spend five hours or fewer a quarter on investment. 63% have a flight plan. they are most common among schemes that have fiduciary managers. there has been a 25% increase in the use of Ldi over the past year. the main advantages respondents cited were: investment expertise (57%); daily attention to risk/investments (43%); bespoke/ tailored solution (35%). the main disadvantages respondents cited were: cost (55%), hard to compare different providers (42%), loss of control by trustees (36%). Aon Hewitt surveyed more than 350 respondents representing approximately 25% of the uk s defined benefits pension market, representing around 70% of all fiduciary assets in the uk. EngagEd InvEstor january / february

11 Press releases

12 9 News from Aon Aon Hewitt says it is time to kill the myths of fiduciary management LONDON 1 September 2014 Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON) has said that take-up of fiduciary management by pension schemes is continuing to expand but does so despite some of the myths that still surround it. Sion Cole, partner and head of Client Solutions at Aon Hewitt, said: There remains a perception in some quarters that fiduciary management is failing in terms of performance and in the solution it delivers for some schemes. At Aon Hewitt this is a view regarded as at best a mystery - but it seems rooted in some widespread market myths. This situation may be partially due to failings in the partnership and understanding between the provider and scheme often rooted in the original selection process and is therefore not a failing of fiduciary management itself. Aon Hewitt is releasing a series of videos on the fiduciary myths that are currently alive among pension schemes, including the five key ones below and why these views are misguided. (Click here to view) Fiduciary management is only for small schemes Not so there is now a comprehensive range of fiduciary management solutions available to schemes of all sizes, including full, partial and dynamic de-risking mandates. It s all about the issues that are specific to each individual scheme large or small and finding a solution that is tailored to meet their unique needs. Trustees lose control If anything fiduciary management gives trustees greater control. The fiduciary manager should be working within the guidelines set by the trustees at the outset to deliver the results they want. Trustees retain control for the areas they need to, such as high level strategic decisions, setting investment objectives and any parameters. The fiduciary manager can then implement the strategy based on these strict guidelines. Mandates are not going to competitive tender Any decisions on tendering and choice of provider remains with the trustees. At Aon Hewitt, 100% of our new business in the past 18 months has been through a competitive tender process or through an external verification exercise. We are seeing trustees do a good job of following through selection processes including due diligence and site visits. We actively encourage all our clients to come in to our offices. Fiduciary management is just a fad We don t believe that is the case. There is ever-increasing complexity in pension scheme investment, particularly as trustees contemplate putting their schemes on flightpaths to buyout or other solutions. Trustees need all the help they can get with both finding the right approach and being able to action it in time. Clearly, fiduciary management can help with that situation and it s therefore hard to see how it can be an approach which is just subject to fashion. All fiduciary solutions are alike Fiduciary management is very much a bespoke solution, designed to help each pension scheme with its unique characteristics. The approach and services vary greatly between providers and can also differ within the solutions a provider offers - depending on a scheme s specific needs. Again, it comes down to the selection process; trustees need to ask the right questions to get the best understanding of what an individual provider can do for them.

13 10 News from Aon Aon Hewitt Fiduciary Management Survey 2014 finds the majority of schemes opting for tailored measurement of provider performance LONDON 8 September 2014 Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has today announced the findings of its Fiduciary Management Survey 2014, which reveals that two-thirds of schemes measure the success of fiduciary providers against unique objectives while only 25% would prefer to use an industry benchmark. The survey shows that 68% of respondents prefer to assess fiduciary providers against scheme specific targets, measuring the performance of their solution against their own unique investment objectives, rather than judging success against a broad industrywide benchmark or versus other fiduciary solutions. Sion Cole, partner and head of Client Solutions at Aon Hewitt, said: The results of our latest survey show a clear preference from trustees for using tailored measurement rather than broad benchmarking when assessing fiduciary providers. This reveals a recognition that schemes and their needs vary greatly, making industry benchmark analysis misleading in these circumstances. These findings reinforce Aon Hewitt s view that fiduciary performance league tables would not only be inappropriate and irrelevant, but would also be detrimental to helping trustees select the right provider for their scheme. Trustees are becoming increasingly innovative in their approach to achieving pensions stability and it is encouraging to see them using methods of measurement to reflect this. The survey, Aon Hewitt s fifth and the largest on the UK fiduciary management market, gathered the opinions of 359 pension industry professionals, covering an estimated 269 billion of assets and representing around 25% of the defined benefit pension market in the UK. The survey covers 93 schemes currently using fiduciary management services, with an estimated 40 billion of assets, and representing around 70% of all fiduciary assets in the UK. Demand and satisfaction run high The survey also highlights a doubling in the level of uptake in fiduciary management over the last three years, with 37% of respondents having a fiduciary solution in place - up from 18% in The demand for fiduciary management is being driven by two key factors. First, trustees are faced with increasingly complex investment decisions, with schemes which are implementing liability driven investment (LDI) strategies rising by 25% over the last year alone. Second, trustees are spending less time dealing with these decisions, with 73% of trustees devoting no more than five hours each quarter to investment issues, up from 67% in Sion Cole continued: This year s survey reinforces many of the themes that we have seen developing over previous years. Trustees are faced with ever more complex investment decisions and have less time to deal with them, and that is driving demand for access to expertise and support from fiduciary management providers. However, perhaps the most striking trend is the outstanding 99% level of trustee satisfaction with the service of fiduciary managers a resounding success for the industry.

14 11 News from Aon Key survey highlights: Schemes with assets of 59% of trustees want to grant a fiduciary management mandate to a provider that they already work with for or less are the most likely to opt for full fiduciary management. 63% of schemes are now using flight plans as a method of dynamic de-risking; a The main benefits of fiduciary management are cited as being the access to investment and daily attention to risk/investments. Customer satisfaction with fiduciary management services is high with 99% of respondents rating their overall experience as satisfactory, good or excellent. The main concerns are seen as being costs and the difficulty in over the past two years. between providers. Schemes with more than in assets are more likely to opt for a partial fiduciary management mandate than a full one.

15 White papers

16 13 White papers Understanding the fees charged within fiduciary management January 2014 In this white paper we look at the different elements of the fees charged within fiduciary management, the structure of them and how trustees and sponsors can go about comparing providers fees. We also look to address the highly topical question, Are fiduciary fees actually more expensive? (Click here to view) A comprehensive guide to selecting a fiduciary manager February 2014 In this white paper we have drawn together our series of papers released during Autumn 2013, producing a comprehensive guide to selecting a fiduciary manager. This includes the six key steps and arming trustees with the key questions to ask, helping you to select the fiduciary manager that is right for your specific scheme The evolution of pension scheme investing: looking beyond DGFs to fiduciary management April 2014 The UK pensions landscape and the challenges facing pension scheme trustees and sponsors have changed significantly over the last 30 years. How pension schemes invest and the solutions available have also evolved in reaction to this. In this paper we look at the evolution of pension scheme investing from the equity only days through to diversified growth funds (DGFs) and to the more recent development of fiduciary management solutions. Each of the approaches we discuss has ticked a number of items on the investment shopping list but is this enough? Fiduciary management is one solution to the challenges currently facing UK pension schemes. Not only can it tick all the boxes but, perhaps most importantly, it offers a tailored solution focused on funding levels and on closing pension scheme deficits. We believe trustees should look at their individual scheme needs and requirements, decide what their unique investment shopping list looks like and then assess if fiduciary management is the right solution for them. (Click here to view) (Click here to view)

17 14 White papers Fiduciary management: success story or failing fad? June 2014 Fiduciary management is arguably the fastest growing area of the UK pensions industry. Five years on, with some schemes now reviewing their fiduciary mandates, is it proving to be a success story, delivering on its promises? Or could it be deemed to be a failing fad, not providing the key stakeholders with the pensions stability they require or expected? In this paper we look at five key reasons why individual fiduciary management solutions could be seen to be failing. We draw upon on our own experiences and those of our fiduciary clients to highlight how these can be overcome, or avoided from the outset. Fiduciary management is solving a lot of the problems faced by trustees and sponsors. However, to achieve this the solution has to be appropriate for the unique needs of each scheme, and this is a joint responsibility of provider and client. Performance league tables: Great for football, a step backwards for fiduciary management November 2014 Fiduciary management is now an established investment and governance solution having had a strong presence in the UK pensions market for over 5 years. However, perhaps due to its perceived complexity, there remains a number of misconceptions around this approach. One such topic is that of performance league tables; there have been calls by some in the industry to use these for fiduciary management. In this latest paper we discuss why we believe fiduciary management performance league tables would be inappropriate and even misleading. We draw upon examples and illustrations to support this view. (Click here to view) (Click here to view)

18 Fiduciary myth busters

19 16 Fiduciary myth busters We have published a series of videos on our website that look to dispel some of the common myths of fiduciary management To access the videos please click here: Myth 1: Loss of control Myth 2: Schemes are being flipped to fiduciary by providers Myth 3: Fiduciary performance league tables would be helpful or please visit our website: Myth 4: Fiduciary fees are ambiguous Myth 5: Fiduciary management requires MORE trustee time Myth 6: Fiduciary management is more expensive Myth 7: All fiduciary solutions are much alike Myth 8: Fiduciary management adds conflict of interest Myth 9: Fiduciary management is only for big schemes Myth 10: Fees are an easy way to compare fiduciary providers Myth 11: Fiduciary isn t suitable for schemes near buy-out Myth 12: An RFP is the best way to select a fiduciary provider

20 17 Look to the proven performer. It s the wise choice. Managing funding level risk whilst achieving good investment returns can be challenging for pension scheme trustees and sponsors. That s why so many pension schemes are turning to proven performers for help. Performers with the level of expertise to provide pension schemes with a greater certainty of meeting their long-term goals. Our fiduciary management approach provides solutions that are totally bespoke and tailored to the needs of each unique pension scheme. With a proven track record isn t it time you made the wise decision? Put your scheme in a winning position by providing greater pensions stability. Talk to us now. Call or sion.cole.2@aonhewitt.com Follow us For Professional Clients only. Copyright 2014 Hewitt Risk Management Services Limited. All rights reserved. Hewitt Risk Management Services Ltd is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales. Registered No: Registered Office: 8 Devonshire Square, London EC2M 4PL.

21 18 Disclaimer To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the prior written consent of Aon Hewitt. Aon Hewitt does not accept or assume any responsibility for any consequences arising from any person, other than the intended recipient, using or relying on this material. Copyright 2015 Hewitt Risk Management Services Limited. All rights reserved. Hewitt Risk Management Services Limited, 10 Devonshire Square London EC2M 4YP Registered in England No: Hewitt Risk Management Services Limited is authorised and regulated by the Financial Conduct Authority 10 Devonshire Square London EC2M 4YP Tel: This document and any enclosures or attachments are prepared on the understanding that it is solely for the benefit of the addressee(s). Unless we provide express prior written consent, no part of this document should be reproduced, distributed or communicated to anyone else and, in providing this document, we do not accept or assume any responsibility for any other purpose or to anyone other than the addressee(s) of this document. Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a rating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation s systems and controls or operations. This document and any due diligence conducted is based upon information available to us at the date of this document and takes no account of subsequent developments. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything. Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we can not research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard. Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of data and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events.